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CSS Micro Macro Economics P-I QUESTION #1697
Question 1
Automatic stabilisers — mechanisms that automatically moderate economic fluctuations without requiring new legislative action — are instruments of which branch of economic policy?
  • Monetary policy
  • Trade policy
  • Fiscal policy✔️
  • Investment policy
Correct Answer Explanation
Automatic stabilisers are built-in features of the fiscal system (taxation and government spending) that automatically moderate business cycle fluctuations. Examples include progressive income taxes (tax revenues fall automatically in recessions, reducing the tax burden) and unemployment benefits (government spending automatically rises in downturns, supporting demand). They are fiscal policy tools — not monetary, trade, or investment policy instruments.